Crop Production Costs and Crop Production Costs and Rotation - - PDF document

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2 0 0 7 I llinois Farm Econom ic Sum m it

The Profitability of I llinois Agriculture: W here to from Here?

Crop Production Costs and Crop Production Costs and Rotation Decisions Rotation Decisions

Gary Schnitkey schnitke@uiuc.edu University of I llinois

2 2 0 0 7 I llinois Farm Econom ic Sum m it

Topics

• 1. Cost increases
• 2. Impacts on per acre break-even revenues
• 3. Corn versus soybean decisions
• 4. Controlling costs with more corn

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3 2 0 0 7 I llinois Farm Econom ic Sum m it

Per Acre Non-land Costs, Central Illinois High-Productivity Farmland

100 150 200 250 300 350 400 00 01 02 03 04 05 06 07P 08P

Year $ per acre

Corn ($123 increase) Soybeans ($54 increase)

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Variability Across Farms Reporting averages Large variability across farms More variability in 2008 because of fertilizer price variability

Fertilizer Expenses, 2006 0% 5% 10% 15% 20% 25% 30% Less than $20 $20 to $30 $30 to $40 $40 to $50 $50 to $60 $60 to $70 $70 to $80 Greater than $80

Percent

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5 2 0 0 7 I llinois Farm Econom ic Sum m it

Items Contributing to Increase

Co Corn rn Fe Fertilizer rtilizer $58 $58 Seed Seed 19 19 Crop insurance Crop insurance 13 St Stor

• rage

age 7 Fuel and oil Fuel and oil 7 In Inte terest rest 4 Mach de Mach depreciation 4 preciation 4 Ot Other 11 Tot Total $123 123 Soybean Soybeans Fe Fertilizer rtilizer $18 $18 Seed Seed 11 11 Fuel and oil Fuel and oil 6 Crop insurance Crop insurance 5 Inte Interest 4 rest 4 Mach de Mach depreciation 4 preciation 4 Ot Other 6 Total Total $54 54 Per Acre Cost Differences from 2003 to 2008P, Central Illinois, High Productivity Farmland

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Non-land Costs and Revenue Breakevens Break- Break-Even Revenues to Cove Even Revenues to Cover Non-L r Non-Land Costs, nd Costs, Central Illinois, High-P Central Illinois, High-Pro roductivity Farmland ductivity Farmland

Corn Corn Soybeans Soybeans Expect Expected y ed yiel eld 186 bu. 186 bu. 54 54 bu. bu. Direct cos Direct costs $252 $252 $114 $114 Power costs wer costs 62 55 Ove Overhead costs ad costs 50 46 46 Non-land costs Non-land costs $364 $364 $215 $215 Break Break-ev even revenue * en revenue * $1.99 $1.99 $3.98 $3.98 * Non-land co * Non-land costs divi sts divided by ded by expect expected y ed yield eld

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Break-Even Revenues to Cover Non-Land Costs

Corn Soybeans

• Exp. Break-
• Exp. Break-

Yield Even Yield Even Northern 178 $2.13 51 $4.47 Central (high-prod) 186 $1.99 54 $3.98 Central (low-prod) 168 $2.18 50 $4.30 Southern 148 $2.50 47 $4.77

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Non-land Costs and Revenue Breakevens Break-Even Revenues to Cover Total Costs, Break-Even Revenues to Cover Total Costs, Central Illinois, High-P Central Illinois, High-Pro roductivity Farmland ductivity Farmland

Corn Corn Soybeans Soybeans Expect Expected y ed yiel eld 186 bu. 186 bu. 54 54 bu. bu. Direct cos Direct costs $252 $252 $114 $114 Power costs wer costs 62 55 Ove Overhead costs ad costs 50 46 46 Non-land costs Non-land costs $364 $364 $215 $215 Land cost Land cost 190 190 190 190 Tot Total costs l costs $554 $554 $405 $405 Break Break-ev even revenue * en revenue * $2.98 $2.98 $7.50 $7.50 * Total costs divi * Total costs divided by ded by exp expected cted yield yield

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9 2 0 0 7 I llinois Farm Econom ic Sum m it

Break-Even Revenues

Per Bushel Break-Even Per Bushel Break-Even Revenues fo Revenues for Di r Diffe ffering ring Per Acre Cash Rent Levels Per Acre Cash Rent Levels Cash Cash Rent Rent Co Corn rn Soybea ybeans ns 175 175 $2.91 $2.91 $7.22 $7.22 200 200 3.05 3.05 7.69 7.69 225 225 3.18 3.18 8.15 8.15 250 250 3.32 3.32 8.61 8.61 275 275 3.45 3.45 9.07 9.07 300 300 3.59 3.59 9.54 9.54 325 325 3.72 3.72 10.00 10.00 350 350 3.86 3.86 10.46 10.46

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Break-even to Actual Prices

U.S. Corn Prices, 1960 to 2006. 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 60 65 70 75 80 85 90 95 00 05 10F

Year $ per Bu.

60 - 72 Average $1.17 73 - 05 Average $2.36

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11 2 0 0 7 I llinois Farm Econom ic Sum m it

Acres in Crops

Crop Reporting 2006 2007 District Acres Acres Change Northwest 1,857 2,089 12% Northeast 1,045 1,245 19% West 1,069 1,234 15% Central 1,619 1,904 18% East 1,596 1,855 16% West Southwest 1,612 1,838 14% East Southeast 1,490 1,721 16% Southwest 484 627 30% Southeast 528 687 30% Illinois Total 11,300 13,200 17% U.S. 78,327 93,616 20% (,000) acres

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Corn Versus Soybean Acres

Corn Minus Soybean Returns on Illinois FBFM Grain Farms, 2004 - 2008P

• 40
• 20

20 40 60 80 100 120

North Central - High

• Prod. Land

Central - Low

• Prod. Land

South

Region $ per Acre

04 05 06 07P 08P

Year

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13 2 0 0 7 I llinois Farm Econom ic Sum m it

Corn Versus Soybeans

Corn-after Corn-after

• Soybeans
• Corn

Soybeans Panel A. Northern Illinois Yield ($ per acre) 183 173 51 Price ($ per bushel) $3.75 $3.75 $9.20 Total revenue (per acre) $715 $678 $498 Non-land costs (per acre) 373 387 228 Operator and land return $342 $291 $270 Panel B. Central Illinois (high-productivity farmland) Yield ($ per acre) 191 181 54 Price ($ per bushel) $3.80 $3.80 $9.25 Total revenue (per acre) $753 $715 $527 Non-land costs (per acre) 357 371 215 Operator and land return $396 $344 $312 `

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Corn Versus Soybeans

Corn-after Corn-after

• Soybeans
• Corn

Soybeans Panel C. Central Illinois (low-productivity farmland) Yield ($ per acre) 173 163 52 Price ($ per bushel) $3.80 $3.80 $9.25 Total revenue (per acre) $682 $644 $506 Non-land costs (per acre) 359 373 215 Operator and land return $323 $271 $291 Panel D. Southern Illinois Yield ($ per acre) 148 138 47 Price ($ per bushel) $3.85 $3.85 $9.30 Total revenue (per acre) $589 $550 $456 Non-land costs (per acre) 363 377 224 Operator and land return $226 $173 $232

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Price Variability

Corn Price 3.00 7.06 7.17 6.38 5.55 3.25 7.91 8.00 7.17 6.29 3.50 8.75 8.84 7.95 7.02 3.75 9.60 9.68 8.74 7.76 4.00 10.45 10.52 9.52 8.49 4.25 11.30 11.36 10.30 9.22 4.50 12.15 12.19 11.09 9.96 Table 2. Break-Even Soybean Prices for Different Corn-After-Corn to Have Same Return as Soybeans.1 Central Illinois

1 Break-even soybean prices calculated using yields and costs

shown in Table 1. High Productivity Low Productivity Illinois Southern Northern Illinois $ per Bushel

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Planting more corn Budgets assume costs don’t change with increases in corn acres (e.g., power costs do not increase with corn acre increases) Much concern about controlling yield drags in corn-after-corn More of a concern may be controlling costs as increase corn acres

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17 2 0 0 7 I llinois Farm Econom ic Sum m it

Operator and Land Returns by Percent Acres in Corn Average Operator and Land Returns for FBFM farms that:

Are in Northern and Central Illinois Receive most of their income from grain

• perations

Have limited other farm activities

Average returns by “Percent Acres in Corn”

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Farm Level Results

Percent acres in corn 2003 2004 2005 2006 40.1% to 45% 170 182 142 182 45.1% to 50% 171 187 165 199 50.1% to 55% 167 197 158 212 55.1% to 60% 170 200 150 208 60.1% to 65% 177 198 147 213 65.1% to 70% 169 194 150 216 70.1% to 75% 178 209 151 214 More than 75% 162 201 140 190 Operator and Farmland Returns by Percent of Land in Corn Year

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19 2 0 0 7 I llinois Farm Econom ic Sum m it

2006 Scatter Graph

Operator and Land Return by Percent of Land in Corn, 2006

• 200
• 100

100 200 300 400 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent in Corn $ per Acre

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Farm Level Results in 2006

Percent acres in corn: Power Non-land Corn Soybeans 40.1% to 45% 63 242 172 51 45.1% to 50% 63 250 174 53 50.1% to 55% 62 255 176 54 55.1% to 60% 65 269 179 54 60.1% to 65% 71 278 179 54 65.1% to 70% 78 301 184 55 70.1% to 75% 84 305 179 57 More than 75% 95 341 177 56 Costs Yields Per Acre Costs and Yields

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21 2 0 0 7 I llinois Farm Econom ic Sum m it

Summary Costs increase cause break-evens to be at new levels Corn looks more profitable in 2008 on high- productivity farmland Cost control is key for more corn-after-corn